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Key Tips to Improve Your Business Loan Eligibility
Whether you require a business loan for an existing business or to start a new one, many banks and lending institutions in India offer business loans for small and large-scale businesses. However, the approval depends on whether the business and owners meet all the eligibility criteria set by the bank or lender. Here are some top tips to improve your business loan eligibility
Key Guidelines to Improve Your Business Loan Eligibility
- Have a proper business plan: Banks prefer to lend to borrowers who have a clear plan of how the loan amount will be utilized. This is why it is important to have a business plan or an in-depth explanation of how the money will be utilized throughout the loan tenure. Banks like to know how exactly the business will use the money and prefer applicants who are clear about the same. The business plan should also include basic financials which can help in convincing the bank about the loan requirement.
- Know About the Documentation in Advance: Every lender is different and has a different application process for lending money. Some banks may require a lot of information about the business before granting a business loan while others may only have a minimal amount of documentation requirement. Always ensure to know about the process and requirements well in advance so that you can improve your loan eligibility and get the loan easily.
- Work on Having a Good Credit Score: Most banks and lending institutions will evaluate your credit score before sanctioning a business loan. If your credit score is not within the acceptable range, there are chances that your loan application will be rejected. This is why it is important to get your credit score checked before making an application. Also, begin working on a good credit score if it’s not as per the lender’s expectations. This can help in improving business loan eligibility.
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Manage Cash Flow: Lenders assess your cash flow metrics to measure your repayment ability. Check your debt service coverage (DSCR), which indicates how much cash is available with you to cover your debts. The probability of obtaining a business loan is higher if you have better cash flow figures. Get rid of any needless expenses that will affect your liquidity to improve your cash flow figures. Invoices are valid proof of cash flow. But, you should also make sure that any invoice for your company is in the name of your company and does not refer to any individual. Also, try to cut down on overhead expenses.
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Create A Repayment Plan: Provide complete and accurate details in your loan application. Present a concise and clear repayment plan to your creditor to build confidence and trust. Ensure that you will be able to repay your business loans if your business venture is unsuccessful. If you communicate that you have a backup plan, it shows the lender that you are responsible with your finances and prepared for the worst.
Many actions and steps go towards improving business loan eligibility. Since it cannot be improved overnight, you must start working on it well in advance of making a business loan application.